glass steagall info...
Financials jump on reform pact
New wave of consolidation seen in industry
By Rex Nutting and Emily Church, CBS MarketWatch
Last Update: 3:42 PM ET Oct 22, 1999 NewsWatch
NEW YORK (CBS.MW) -- Bank and broker stocks surged 3.5 percent Friday on the heels of back-room agreement in Congress that will likely lead to the scrapping of a Depression-era law separating banking and securities.
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Passage of the long-awaited bill to repeal the Glass-Steagall Act now looks likely, and that's signaling another wave of mergers and acquisitions in the industry.
"Look at Lincoln National, look at all of the asset managers and investment houses. They're all well outperforming the Dow," said Kim Wallace, a political analyst for Lehman Brothers.
The compromise on financial industry reform "has sent a clear message to investors that believe there are companies in the financial services sector that will take advantage of the new rules to consolidate the industry and squeeze efficiencies out of some of the assets that will be acquired to do some benefits for the customers and the shareholders."
Lincoln National (LNC: news, msgs) charged nearly 13 percent higher on the news, or up 5 3/8 to 47 1/16. American International Group (AIG: news, msgs), another insurer, charged 6 1/2 to 92 3/8, while the group ($IUX: news, msgs) rose 5.8 percent.
The banks ($BIX: news, msgs) rose 3.5 percent while Wall Street's brokerage and investment banking powerhouses Morgan Stanley Dean Witter (MWD: news, msgs), Goldman Sachs (GS: news, msgs), Merrill Lynch [s; mer] and J.P. Morgan (JPM: news, msgs) all notched strong gains on the news.
Merrill was one of the biggest gainers, rising 5 9/16, pr 8 percent, to 72 7/8. Merrill is long believed to have been interested in expanding via acquisitions in the banking sectors, once the rules changed.
David Komansky, Merrill's chief executive, said in a statement mid-Friday that the compromise gives financial services companies "the strategic flexibility to compete and win in the global marketplace. We look forward to swift, final action by Congress and President Clinton."
In the short-term, insurance companies and thrifts are the big beneficiaries of the repeal. Over the long-term, financial companies which are technologically advanced will be the gainers, Wallace said. Citigroup (C: news, msgs) -- the mega merger between Citicorp and Travelers last year -- is an example of the deals that can take place.
The bill would allow banks, insurance companies and securities firms to merge and enter each other's core business areas. Following the late-night agreement between Republican lawmakers and Clinton administration officials, final passage is probable in the next few days.
The industry had been separated into commercial banking, investment banking, securities and insurance segments by the Act.
The debate over reform of the industry had dragged on for decades before this week's compromise. In the past few years, the industry groups had mostly agreed on a new structure for the industry, but a turf battle between the Treasury Department and the Federal Reserve stalled progress.
Community contentions
The final stumbling block was over whether to require community reinvestment and tough privacy restrictions on segments of the financial services industry. The Clinton administration won an agreement from Senate Banking Committee Chairman Phil Gramm, R-Texas, on community reinvestment, but Republicans refused to budge on privacy regulations.
The National Community Reinvestment Coalition, the major CRA lobbying group, denounced the "back-room" deal and called for a veto of the bill by President Clinton.
"The bill weakens vital protections against discrimination and redlining," said John Taylor, president of the NCRC. "The big financial interests got what they wanted but the common folk got left behind."
Industry groups praised the compromise. "The legislation ... will give consumers one-stop shopping for their financial services," said Hjalma E.
Johnson, president of the American Bankers Association and the CEO of East Coast Bank. "The legislation will give consumers more choice and convenience and lower prices."
"The Financial Services Act will allow and encourage greater competition,
which will greatly benefit consumers, the industry, and the economy. The
bill will also strengthen the ability of U.S. firms to compete in the global
marketplace," said Marc Lackritz, president of the Securities Industry Association.
The late-night pact didn't surprise Wallace. This time, the industry was united in supporting reform, he said. "They had just maxed out on their ability to grow within their own sectors."
Emily Church is the New York bureau chief for CBS MarketWatch.
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